South Africans trading big volumes in bitcoin

Bitcoin continues to smash records, hitting a series of record highs in just one weekend.

The cryptocurrency hit an all-time high of just over $4 225 on Sunday as the bull run played out across global bitcoin exchanges. In South Africa, the price of bitcoin price shot up from a high of R51 681 early on Friday morning to a new record high of R62 843 on Sunday.

Data from South African exchange Luno shows that 2 241.826 bitcoins were traded via its platform between Friday and Sunday, which at a mid-point of R57 262 is equivalent to more than R128m.

Bitcoin since hit a new record high of R64 900 on Monday afternoon. It finished 2016 at R15 149 on 29 December.

The fork went relatively smoothly and there is now more clarity on how bitcoin and bitcoin cash plan to scale

Farzam Ehsani, blockchain lead at RMB, said the rise is related to increased clarity over the future of bitcoin after a recent fork. Bitcoin “split” on 1 August, creating as bitcoin cash, a new cryptocurrency completely independent of bitcoin. Butcoin cash launched following a dispute among developers over how to scale bitcoin. At the same time, bitcoin core adopted SegWit an update aimed at solving transaction malleability and increasing the speed and throughput of transactions on the blockchain.

“There was a lot of disunity in the bitcoin community leading up to the fork. Given the decentralised nature of blockchains and the difficulty in making protocol upgrades, many people divested from bitcoin not knowing how the fork would pan out. But the fork went relatively smoothly and there is now more clarity on how bitcoin and bitcoin cash (the forked blockchain) plan to scale. This clarity has drawn people back into the cryptocurrency, and as there’s a limited supply of bitcoin, the price is going up,” he said.

Speculation

There’s also speculation that bitcoin, like gold, is acting as a safe-haven asset as geopolitical tension between the US and North Korea escalates. Ehsani said it is possible that people are trying to hedge against this risk using bitcoin, which, he says, shares many of the characteristics of gold, but performs better as a financial instrument in some key respects. Like gold, bitcoin’s supply is restricted but, crucially, is much more portable, more divisible, cheaper to store, supranational and cannot be controlled by any individual, institution or government, he said.

According to Lorien Gamaroff, chief executive of Bankymoon, bitcoin is going through a “next step” moment similar to when the Internet became mainstream. “It’s not just this funny thing that geeks are playing with. People outside the system are looking at it seriously and trying to figure out how it works and there’s all this new money coming into the system.

“Mainstream pundits are making predictions and mainstream institutional investors are looking at it. It has got over that early stage when people thought it was all about drug dealers and money launderers.”

Bitcoin is fast gaining traction in South Africa. Data from CryptoCompare puts the market cap of South African bitcoin holdings at just over R1bn compared to a total global market cap of US$70bn. It shows that 556.55 bitcoin were traded at a rand value of R34.2m over the last 24 hours, which accounts for just 0.13% of total global trade. But Gamaroff said volumes traded on just one local exchange, Luno, are comparable with those traded exchanges in major bitcoin markets such as China and the US.

We see an increase in interest – mobile app downloads, new customer sign-ups and trading – correlated to some external events

Although Luno would not disclose the number of active users on its domestic platform, it did confirm a marked increase in interest. “We see an increase in interest — mobile app downloads, new customer sign-ups and trading — correlated to some external events. The first is volatility — when the price goes up or down, more people are buying and selling. That said, when the price moves up, people tend to revisit the idea of buying a small amount of bitcoin, something they may have considered sometime in the past. We also see more press coverage during these times,” said Werner van Rooyen, head of marketing and growth at Luno.

A poll conducted via its platform shows that 66.6% of Luno users trust bitcoin as an investment tool and 68.5% trust it as a payments system. Its users’ reasons for buying bitcoin vary, with 39.6% using it for investing, 12.9% for payments and 14.3% for trading and speculative trading.

Luno’s major trading markets are South Africa, Malaysia, Nigeria and Indonesia. Van Rooyen said the exchange has the highest trading volumes in South Africa over the last few months.

‘More interactions’

Previously, different countries would take the lead in terms of monthly trading volumes. “We tend to see more interactions — people checking the price more often, making more, but smaller transactions — in places like Malaysia… The latency between South African customers signing up and buying their first small amount of bitcoin, has decreased a lot in recent months,” he said.

He added that better-informed consumers and the network effect that assists and accelerates adoption could be driving uptake in South Africa.

Gamaroff said bitcoin’s rise is likely to continue as traders’ worst fears such as hacked exchanges and forks have had little to no effect on its price. “If you’re in bitcoin, you should be bullish. Things that have stopped the rally in the past are not having that effect anymore. Sentiment is positive and there’s nothing fundamentally right now that looks threatening… It’s not impossible to see the price doubling by the end of the year,” he said, adding that only a ‘black swan event’ is likely to impact the cryptocurrency.

This article was originally published on Moneyweb and is used here with permission